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Special Finance®

Subprime’s New Breed

June 2010, F&I and Showroom - Feature

by Rob Hagen

Over the last two years, a tremendous number of formerly prime credit customers have been adversely affected by the shaky economic status of our country. You need not look any further than the United States’ average credit score, which is down almost 50 points from where it was only four years ago. This will cause a dramatic shift in our industry and it will change the way many dealers handle their customers.

Consider the example of a customer whose last two vehicles were luxury cars but recently went through a foreclosure. Yes, he’s a special finance customer, but his needs were shaped by better financial times. He’s not likely to call an 800 number and submit all of his personal information. He will also definitely balk at an 18 percent annual percentage rate (APR). He also is not likely to develop a taste for the traditional special finance vehicle. In fact, he will probably look for the type of vehicle he’s accustomed to — or better!

Every dealership in the country must be prepared to assist this new type of credit-challenged customer. Making that adaptation will be critical to minimizing the number of opportunities your dealership will miss due to credit issues.

Credit Counselors Needed

Now, don’t get me wrong, I’m not saying you should immediately adopt the traditional subprime process and demand a credit application for every customer who walks through your door. You do, however, need to have a plan in place for this now-common scenario of a customer who drops in, goes through the entire process with your top salesman, commits to the deal and then says, “Is a foreclosure a bad thing when it comes to buying a car?” What now, right?

First, remember that your customer is swimming in the subprime credit pool for the first time. That means he’s likely to be an informed buyer who has never had a problem obtaining financing. The idea of being turned down is foreign to him and he expects to be treated like he always has been. How do you handle this combustible situation? Become a therapist to your customer. Here are some pointers:

• Diffuse the Situation: Your customer is not going to understand why qualifying for an auto loan is suddenly such a big deal. Take the time to walk customers through their credit report and explain what prospective lenders will see.

• Share Resources: Purchase or create a resource book that shows customers tips on how to rebuild their credit. Spending an extra few minutes with a customer will make a big difference.

• Verify Accuracy: Make sure the credit issues belong to your customer. The Federal Trade Commission estimates that as many as 9 million Americans fall victim to some form of identity theft each year. In your resource book, have templates of dispute letters that you can give customers, as well as contact information for all three major credit bureaus.

•  Listen and Learn: There is a story behind every derogatory item on the bureau. Find out what happened and ask what they are doing to resolve their situation.

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